US Retail Sales Surpass November Expectations

• Core retail sales (excluding autos, gas, building materials, and food services) increased 0.4% in November, closely tied to GDP consumer spending component
• Bank of America data shows a 'K-shape' spending divergence between income groups that started in late 2024 and widened through the fourth quarter, particularly in discretionary spending
• October retail sales were revised down to a 0.1% drop from previously reported unchanged, while core October sales were revised down to 0.6% from 0.8%

Summary: US Retail Sales Surpass November Expectations

Key Findings:

U.S. retail sales rose 0.6% in November, exceeding the 0.4% forecast and reversing a downwardly revised 0.1% decline in October. The data, released January 14 by the Commerce Department's Census Bureau, indicates robust economic momentum heading into Q4.

Core Metrics:

Core retail sales—excluding automobiles, gasoline, building materials, and food services—increased 0.4% in November following a revised 0.6% gain in October (previously reported as 0.8%). These figures closely align with GDP's consumer spending component and suggest strong economic performance.

Economic Outlook:

Consumer spending drove the economy's 4.3% annualized growth rate in Q3. The Atlanta Federal Reserve currently projects Q4 GDP growth at 5.1%, supported by the solid retail performance. Motor vehicle purchases rebounded significantly, contributing to the November gains.

Income Disparity Trends:

Bank of America Securities' Consumer Prism data reveals a widening "K-shaped" spending pattern, with higher-income households driving consumption while lower-income consumers struggle with rising living costs. This divergence, which began in late 2024, is particularly pronounced in discretionary spending categories. December saw the largest increase in certain costs in over three years.

Policy Context:

President Trump has proposed several cost-reduction measures, including purchasing $200 billion in mortgage bonds and implementing a 10% cap on credit card interest rates for one year. However, financial institutions warn these measures could restrict credit access. Economists emphasize that housing affordability issues stem primarily from supply constraints.

Note: Data releases were delayed due to a 43-day government shutdown.